Cliff Taylor: Are we really going to let ourselves be bought off again by election promises

Are we really ready to be boring, prudent northern Europeans? It may have passed you by but this week Ireland borrowed money for 10 years on the international markets at a small bit over 1 per cent. It is the kind of thing we have come to take for granted. Perhaps we shouldn't.

Somehow, through a mix of good management and good fortune we have moved from being a peripheral, bust country, linked with southern European profligacy, to being ranked with the northern European blue-chips.

For a country with a debt level equal to the size of its annual GDP this is a priceless advantage.

The election debate on the economy should not be narrowed down to an auction on who will do what to the USC or who will offer more to pensioners. It should be about what we can do to hold on to the extraordinary favourable set of financial circumstances in which we find ourselves – and how to use this window of opportunity to position ourselves for the future.

In the eyes of the markets we have left our previous classmates in peripheral Europe – remember that a few short years ago we were classified as one of the PIIGS along with Portugal, Italy, Greece and Spain.

Interest rates

Now we are able to borrow at interest rates just fractionally above the group of northern European countries who are rated as not quite being German, but near enough – France and Belgium in particular, but also not far above Finland and Austria.

This move from membership of the group with good wine and good weather to the gang with good beers and bad weather is not some money market irrelevance. Being able to raise borrowings at cheap rates over the past couple of years has already lowered the average cost of all our national debt from just under 4 per cent at the end of 2014 to less than 3.5 per cent now.

That may not sound particularly exciting, but it is worth roughly €1 billion a year to the exchequer, equal to half the additional money available in the last budget for tax cuts and spending hikes.

Low oil prices

Together with low oil prices and a generally weak euro, the current circumstances give us a once-off window of opportunity to continue to undo the awful damage of the financial crisis and start to rebuild for the future.

It won’t last forever. There are many warning signs internationally, as shown by stockmarket swings this week.

The ECB bond-buying programme will not go on indefinitely.

There are warnings of a prolonged period of low international growth.

The short-term outlook is good but we can’t continue to smash the international growth average year after year.

Yet we seem to be heading into a general election campaign dominated by the old promises of jam tomorrow via tax cuts and increases in government payments. The Coalition parties are selling themselves on the stability ticket, but all the pre-campaign publicity has been on what they are promising – the end of the USC, welfare hikes, a boost for those on low pay and so on.

The Opposition shows all the signs of joining in. Much of the debate to come will be dominated by who will give what to whom, paid for out of an economic surge which may, or may not, continue.

It makes you wonder whether we really want to join the northern European prudence club and are prepared to settle for what we said we wanted during the crisis – steady but sustainable growth. Or is how we vote all about who will put the most money into our pockets?

Take a look at the international financial markets where investors are running scared. In the short term even this is playing to our advantage by holding down interest rates and pushing down oil prices.

But in the long term, who knows? If world growth does collapse, or the US recovery does run out of steam, we will not be immune. What if Britain leaves the EU?

Electorate

Against this backdrop, and in the wake of the deepest economic crisis any of us have ever seen, you would wonder what message will actually chime with the electorate.

Of course, everyone wants to pay less in tax and charges and get more in government payments. But doesn’t this all seem a bit of a sideshow at a time when we are just out of a crisis, the country is flooding, we have a housing shortage and there are people on trolleys and chairs in our emergency departments?

Or is it that the public don’t actually believe that politicians can solve any of these problems by spending more money, so will vote in line with what they believe is best for their pocket? Maybe the party tax promises are what we want to hear.

What we do next is a matter of priorities, which is, of course, where economics and politics meet.

If we really want to stay in the northern European club then we would eliminate borrowing as soon as possible – and use spare resources largely to pay down debt and to undertake key public investments which offer a strong economic or social return.

And, yes, there should be room to ease down some taxes and charges, but we shouldn’t bank on the USC disappearing, or paying no property tax or whatever.

We may, if we are lucky, get another year or two in the economic sweet spot we now find ourselves in. We need to use it to cut our risks and position ourselves for the future rather than engage in the tired old game of election promises.